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Keith Roberts is the author of The Origins of Business, Money, and Marketsand the incoming chairman of the Lawyers Conference of the American Bar Association's Judicial Division.
Full profileAmerica’s Innovation by Design
NEW YORK – Born at the dawn of the Industrial Revolution, the United States has creativity and invention written into its DNA. By emphasizing economic freedom and individual achievement, the US has fostered a strong entrepreneurial culture. And, by marketing cutting-edge technologies, financing their development, and purchasing them, Americans consistently transform innovation into economic growth.
Indeed, despite the US economy’s troubles in recent years, its educational, marketing, and financing capabilities remain robust. As developing and advanced countries alike clamor to increase their share of innovation-driven economic growth, the US has already established the necessary institutions – and a solid lead.
Before the Industrial Revolution, global economic growth was gradual and intermittent, depending on population growth, the discovery of treasure, and unexpected technological advances. But, as traditional cost structures and production techniques yielded to mechanization and vast economies of scale, consumers gained access to a cornucopia of new (or newly affordable) goods.
When manufacturing and trade replaced agriculture and household labor as the dominant economic activities, technological innovation became commercially and militarily vital. The US, Europe, and Japan established national innovation infrastructures, comprising government research entities, scientific institutes, research and development laboratories, and technologically oriented universities, night schools, and vocational schools.
During World War II, the US pulled ahead, becoming the global leader in innovation. While its predominance has waned since then, owing to heavy investment in technological infrastructure elsewhere, it remains on top.
America’s global reputation for technological prowess draws talent from all over the world. In 2008, foreign nationals accounted for a majority of US Patent and Trademark Office filings. In 2011, US nationals were responsible for 48.4% of filings.
America’s higher-education system has given individuals the ability and drive to innovate. According to one well-known survey, the top 15 universities in engineering, technology, and computer sciences (measured by awards and research output) are in the US. In fact, America boasts 20 of the top 25 technical universities, 52 of the top 100, and 154 of the top 500 universities – almost as many as Japan, Germany, the United Kingdom, France, China, and India combined.
Moreover, the US accounts for 26% of college-educated adults worldwide – as many as China, India, and Russia combined. According to the Center for Measuring University Performance, more than 700 US universities conduct research.
Support for education and research extends beyond universities. The US accounts for nearly one-third of global R&D spending – 2.6 times China’s share – including 37% of global R&D spending in the energy sector, 49.7% in life sciences, 58% in information and communication technologies, and 27.5% in chemicals and materials. In 2012, spending in the US on aerospace and defense R&D was almost 3.5 times higher than in all other countries combined. While the US does not dominate every field, it remains the world’s principal source of technological innovation overall.
Given the opportunities that America’s embrace of innovation implies, more than two-thirds of the foreign science and engineering students who study in the US remain for at least ten years after graduation. And the US has not only translated education into innovation; it has converted innovation into economic growth.
The first step in that process is marketing, which maximizes the commercial viability of innovative technologies by stimulating desire for them. Marketing communicates value and appeal to potential buyers, while reducing barriers to sale.
US business schools – which emphasize marketing in their curricula – dominate international rankings. For example, they filled eight of the top ten positions in theFinancial Times' 2011 rankings. Long the world’s largest marketplace, the US boasts more retailers, advertising agencies, and promotional communications than any other country – evidence that its capacity to stimulate desire for innovation remains strong.
The second step of the process is financing – giving individuals the purchasing power to innovate, and to consume innovative technologies. This occurs largely through credit (purchasing power in exchange for the promise of repayment). Formerly limited to wealthy individuals and established firms, credit has become pervasive – especially in the US, where nearly all consumers have credit cards, venture capital funds vie to sponsor innovation, and robust securities markets allocate savings to new projects.
Given its well-developed financial system, which includes by far the largest number of commercial banks worldwide, America is well positioned to continue to provide the needed purchasing power to support innovation. For example, US-based private equity/venture-capital firms raised $548 billion for investment purposes in 2003-2008 (excluding government funds) – more than double the rest of the world’s combined total of $251 billion.
In addition, the value of stocks and bonds on US securities markets totaled $67 trillion at the end of 2010, compared to $63 trillion in Europe and only $16 trillion in China. Indeed, despite recent excesses, the US financial sector remains among the world’s most accessible sources of purchasing power for both innovative technological ventures and consumer purchases.
By far the world leader in higher education, research and development, marketing, and finance, America maintains a strong capacity to translate technological innovation into economic growth. In an uncertain economic environment, US policymakers must protect and build upon one of their country’s most valuable assets – and its institutional underpinnings.
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